Reserve Bank policy targets don't work, Labour leader Phil Goff said today as he ended a 20-year political consensus on monetary policy.

"Our Reserve Bank policy targets are not well designed to produce a stable and competitive exchange rate, nor to keep interest rates as low as possible," Mr Goff said in a speech to Federated Farmers in Wellington.

The battle against inflation was no longer the most important priority - growth and wealth creation were equally vital, Mr Goff said.

Farmers were heavily exposed to interest rate movements, and even more so to the exchange rate.

"We export 95 per cent of everything our farms produce. When our exchange rate surges, it undermines the competitiveness of our prices in destination markets.

"When the exchange rate falls, the price of inputs like fuel can soar unexpectedly."

But Reserve Bank policy targets did not achieve stability and when faced with a surge of domestic demand the response was to increase interest rates which fuelled more inflows of foreign capital, which might then be lent out, creating even stronger domestic demand.

"So New Zealand's overseas debt increases inexorably, while monetary policy punishes our most productive businesses and first-home buyers - just about the two sectors that we least want to affect," Mr Goff said.

The official cash rate punished the tradeable sector for inflation in other sectors. It skewed investment away from productive areas of the economy, he said.

"Today I am announcing the end of the consensus around the policy targets and tools of the Reserve Bank. Labour wants to see a step change in our export performance."

He said Labour would be studying options to improve monetary policy.

Labour goals were:

* a stable and competitive exchange rate;

* reduced interest rates for businesses and home owners;

* continued priorities of price stability and low inflation;

* to guard against expectations of price rises.

Mr Goff said how the goals interacted with other objectives would be an important part of Labour's economic policy for the next election.

- NZPA